Crypto’s New Gatekeepers? Why Startups Now Need Competitors’ Nod to Enter the Market

India’s crypto space just hit an unexpected twist. As regulators push for more accountability, new crypto companies may now need clearance from existing players before they’re allowed to operate. This new ‘fit and proper’ requirement—meant to assess the credibility of fresh entrants—has triggered debate about fairness, competition, and the future of innovation in the country’s growing digital asset sector.

What the New Rule Means

Under this framework, any startup looking to enter the Indian crypto exchange market must now pass a ‘fit and proper’ test. What’s unusual is who’s part of the decision-making: existing members of self-regulatory bodies (SRBs), many of whom are direct competitors.

On paper, the move is intended to ensure that bad actors don’t enter the system. But in practice, it gives established firms significant power to influence who can and can’t join the club.

Why It’s a Big Deal

For crypto entrepreneurs—especially from Tier 2 cities—this raises concerns.

Smaller players often lack the networks or funding that top exchanges already have. Being judged by the very giants they’re trying to compete with feels like asking Amazon to approve a neighbourhood startup.

Many argue this could limit fresh innovation and discourage young teams from building in the crypto space altogether. With India already imposing steep taxes and slow-moving policies on digital assets, this could further widen the gap between large platforms and newcomers.

The Case for Checks and Balances

Supporters of the rule believe it adds much-needed filters in an industry often criticised for scams and rug pulls. They argue that SRBs, formed voluntarily by the industry, are better placed to screen peers than government officials unfamiliar with crypto tech.

There’s also a broader context: India is still figuring out how to regulate Web3 and digital assets. Until formal laws are passed, these industry-led mechanisms are acting as placeholders.

What Startups Are Saying

Not everyone is against accountability—but the process is what’s under the spotlight.

Crypto startups have called for more transparency in how these approvals are granted. Who sits on these panels? What’s the appeal process if you’re rejected? And most importantly, how do we ensure that decisions aren’t biased by market interests?

There’s also a demand for neutral third-party involvement—such as legal or compliance experts—rather than letting private players call all the shots.

Conclusion

India’s crypto market is maturing, but how it manages competition will define what kind of ecosystem it builds. A framework that ensures trust and safety is necessary—but it must also allow space for innovation and fair entry. The ‘fit and proper’ rule might be well-intentioned, but unless it’s implemented with transparency and neutrality, it could do more harm than good.